Reimagining scale

There are few things that all actors in the social enterprise field agree upon. One commonly accepted notion, however, is that the best way for an organization to maximize both impact and profit is to “scale” – or, as this is often interpreted, to grow.

However – as any veteran from the global economic recession will attest –it does not always make sense to grow as much and as quickly as possible. There are other ways to increase revenue and impact, and more and more social enterprises in India have begun to explore how.

A growing number of social businesses prefer debt financing to equity. (When investors offer equity financing, they are essentially purchasing shares of, or partial ownership of, a business. Debt financing is similar to a loan offered by a bank – it is a loan with an attached interest rate.) While equity investors have every reason to desire massive and sustainable growth in their investees, investors offering debt financing simply require a return on principal as well as interest rate. Many social enterprises take advantage of the liquid debt capital to offer new products/services. At the same time, they have the benefit of existing revenue streams as a form of collateral for the money that they have borrowed.

Supply-side social businesses are particularly well-positioned to diversify their products and services as a means to scale. (“Supply-side” social enterprises work with producers rather than consumers.) Rather than succumbing to frustrating conditions in the Indian business environment, these organizations provide alternatives. They partner with banks to provide producers with access to finance, utilize alternative energy resources to ensure continuous/reliable electricity, and develop relationships with producers to eliminate corrupt middle men. Along the way, they develop new revenue streams and create impact in different ways. The numbers may look the same, but these organizations are scaling nonetheless.

Many former Dasra Social-Impact program participants and Village Capital winners fall into this category. Take the example of Sabras, a private limited company based out of the Little Rann of Kutch. Sabras buys salt from agarias (salt producers) at a significantly higher price than the middlemen, and then processes and markets the salt under its own brand – resulting in both greater income and improved working conditions for the agarias. As Agarias require loans at the beginning of each salt cycle to begin production, Sabras has leveraged partnerships with local banks to offer loans with much lower interest rates to the agarias. Finally, by building solar pumps to produce and process salt, Sabras has been able to further reduce inefficiencies in the supply chain (namely the high cost of diesel) and increase income to the agarias. These solar pumps also reduce the hardship of salt production for agarias and substantially cut down on carbon emissions.

SMV Wheels, a private limited company based out of Varanasi, provides a variety of revenue-generating and impactful services to customers. SMV Wheels offers asset-based loans to rickshaw pullers in Varanasi. On completion of repayment, full ownership of the rickshaw is transferred to the rickshaw puller. SMV Wheels also generates revenue by sourcing rickshaw parts directly from wholesale producers to create low-cost high-quality rickshaws for sale to pullers, and by linking up with local companies to display ads on the rickshaws. Finally, SMV Wheels provides rickshaw pullers with uniforms, licenses, and insurance to ensure that they are integrated into the formal legal system in case of an accident or emergency.

Sabras and SMV Wheels are just two examples of social enterprises that employ creative measures to increase both revenue and impact. In a recent report entitled “On the Path to Sustainability and Scale” (2012), Intellecap interviewed nearly 100 social businesses operating in India to assess their challenges and interventions. Sixty three percent of the organizations interviewed reported “developing new products/services” and 54% reported “expanding operations into new areas of the value chain” as strategies for scaling. Many social enterprises – especially those that have been operating for more than five years – have reported “expanding to new customer bases” as a growth strategy that creates greater stability in their businesses. This is an innovative and important way to practice and measure scale.

As the industry continues to mature, social enterprises will find more and more creative ways to scale. Impact investors will, in turn, have no choice but keep up with the times and reimagine their own definition of and metrics for scale.